Service Sector Employment Surges Despite Unstable Environment

Non-manufacturing business conditions in the United States continued to improve in June, according to the latest ISM Report on Business. The Institute for Supply Management reported that the non-manufacturing index declined 1.5 percentage points on the month to 52.2 percent, indicating that America’s service economy is growing but at a slower rate than in May.

The news was a mixed blessing to beleaguered U.S. equity markets on Wednesday. The growing crisis in Egypt and revitalized concerns over European economic stability drove markets lower in early trading, but a series of generally positive economic reports in the U.S. provided some support. Chief among them was an ADP report that the private sector added 188,000 jobs in June versus expectations for an increase of 165,000.

The labor market has been one of the most-watched metrics of economic health within the U.S. The last major Employment Situation report showed a marginal increase in the headline unemployment rate, and a reduction in the labor force participation rate has undermined what could be seen as a slow improvement in conditions.

With this in mind, the ISM non-manufacturing report noted that the employment component increased sharply from 50.1 in May to 54.7 in June, indicating expansion at a faster rate. It was the only component to show accelerated growth for the month.

The business activity index decreased sharply — from 56.5 in May to 51.7 in June — but remained in growth territory. New orders also fell sharply — from 56 to 50.8 — but remained in growth territory.

Overall non-manufacturing business conditions have been much healthier than manufacturing business conditions. ISM reported earlier this week that the manufacturing index climbed back into growth territory after dropping into the negative in May. However, hiring remains weak.

With the spotlight on employment, Friday’s Employment Situation report will round out this week’s indicators and hopefully give investors some insight into not just the health of the market but the timeline for changes to monetary stimulus.